New Zealand's Residential Real Estate: Finding Value in Undervalued Regions Amid a Slowing Market

The New Zealand housing market has entered a period of uneven performance, with major urban centers like Auckland and Wellington experiencing stagnant or declining prices. Yet beneath this national slowdown lies a compelling opportunity for contrarian investors: three regions—Southland, Gisborne, and Northland—are defying the trend with robust price growth, undersupplied housing markets, and attractive rental yields. These areas, often overlooked in favor of high-profile cities, now present asymmetric return potential as migration-driven demand and economic recovery take hold.

A Market Divided: The Case for Contrarian Investing

New Zealand's housing market is bifurcating. While Auckland's median house price fell 1.3% year-on-year to NZ$1.04 million in late 2024, Southland's prices surged 17.7%, Gisborne's rose 13.4%, and Northland's climbed 8.1%. This divergence reflects a broader shift: buyers and renters are fleeing overpriced urban centers for smaller regions offering affordability and lifestyle advantages. For investors, this presents a classic contrarian scenario—regions where fundamentals are strong but sentiment remains underappreciated.

Why Southland, Gisborne, and Northland?

1. Southland: The Pacesetter

Southland leads the nation in housing growth, with median prices at NZ$518,000 (US$289,000) and rental yields of 5.85%. Its appeal lies in affordability—just half the cost of Auckland—and a tight rental market, where weekly rents rose 11.6% year-on-year. Despite a 14.5% increase in listings, demand remains insatiable, driven by migration and regional economic resilience. The region's proximity to Queenstown and outdoor tourism infrastructure adds long-term value.

2. Gisborne: A Hidden Gem

Gisborne's median price of NZ$635,000 (US$355,000) reflects its blend of affordability and coastal charm. While rental yields are slightly lower than Southland's, its 52.4% surge in sales year-on-year signals pent-up demand. The region benefits from underdeveloped land and a growing population, with migration inflows filling labor gaps in agriculture and services.

3. Northland: Balancing Growth and Value

Northland's median price of NZ$730,000 (US$408,000) sits midway between Southland and Auckland. Its 4.6% rental yield and 4.6% rent growth suggest stable demand, while its 14.1% rise in listings underscores supply constraints. Investors should note its strategic location near Auckland, making it a gateway for decentralizing urban residents.

The Drivers of Undervaluation—and Why It Won't Last

Affordability and Decentralization

New Zealand's median multiple—the ratio of house prices to incomes—stands at 8.2 nationally, but drops to 6.5 in Southland and 7.1 in Northland. This makes these regions accessible to first-time buyers and investors, especially as the Reserve Bank of New Zealand (RBNZ) cuts interest rates. The OCR's decline to 4.25% in late 2024 has reduced mortgage costs, reigniting demand in regions where affordability is a selling point.

Migration and Labor Shortages

While net migration slowed to 44,907 in Q3 2024 from a peak of 127,664 in 2023, the trend toward regional resettlement persists. Many migrants are bypassing crowded Auckland for smaller towns, boosting demand in Southland and Gisborne. Meanwhile, domestic workers are relocating for lower costs, creating a virtuous cycle of population growth and housing demand.

Policy Tailwinds

The government's focus on regional development—through infrastructure spending and land-use reforms—supports these areas. For example, Southland's planned expansion of rail links and Northland's tourism initiatives could amplify their appeal.

Risks, but the Upside Outweighs the Downside

Critics argue that New Zealand's stagnant economy (0% GDP growth in 2024) and high government debt (39.2% of GDP) could limit demand. However, these regions are less dependent on national trends: their growth is driven by localized factors like tourism, agriculture, and migration. Even a modest economic recovery in 2025 could trigger a surge in prices.

Another risk is oversupply if construction accelerates. Yet current data shows dwelling consents fell 10.4% year-on-year in 2024, implying supply remains constrained. Investors should prioritize regions with strong population inflows and limited new builds.

Investment Strategy: Target Rentals and Undersupplied Markets

1. Focus on Rentals:
   Prioritize properties in Southland and Northland, where rental yields exceed 5% and demand is strongest. Gisborne's rising sales volumes also suggest it's primed for yield growth.

2. Avoid Overcrowded Markets:
   Steer clear of Auckland and Wellington, where oversupply and high prices limit returns.

3. Monitor Migration Flows:
   Track net migration data—any rebound above 50,000 annually would supercharge demand in these regions.

4. Consider REITs or Regional Funds:
   Investors without local knowledge might look to REITs or regional property funds focused on these areas.

Conclusion

Southland, Gisborne, and Northland are the contrarian's dream: regions where fundamentals outpace sentiment, offering asymmetric returns as New Zealand's economy recovers. With affordability, migration, and policy all aligned in their favor, these markets could outperform for years to come. For investors willing to look beyond the headlines, this is where value—and opportunity—resides.